Stocks & Commodities V. 30:3 (32-34,61): Fiery Bull Trade by Partha Mukherjee

Fiery Bull Trade by Partha Mukherjee

It pays to know your stock. Here’s a step-by-step analysis about how one trader likes to trade the markets.

WE often hear you should buy strong stocks in the strongest sectors. But as with all stock market knowledge, the application of this knowledge can be a challenge. Let me share with you a type of trade I often find very rewarding, a fiery bull trade.

In his book Getting Started In Chart Patterns, Thomas Bulkowski mentions that stocks that rise more than 90% within a three-month period have the best performance. All you have to do is to get into such stocks during a flag/pause. With that in mind, I started looking for such stocks two years ago, using a four-step process:

STEP 1: TRIGGER Best movers in the strongest sectors

The first step is to find the best movers in the strongest sectors. One such stock I found was Hansen Medical (HNSN) when it moved from $1.58 on February 1, 2011, to a high of $3.78 on April 26, 2011. That is 139% in a matter of nearly 90 days. This was the period in the stock market when the health-care sector was leading, so I decided to look deeper into HNSN.

Step 2: THE BIG STORY Higher time frame

Next, I looked at a higher time frame chart to get a bigger picture. Looking at the monthly chart of HNSN, I saw a clear trend reversal as per the 1-2-3 reversal pattern as described by Victor Sperandeo in his book Trader Vic: Methods Of A Wall Street Master. See the sidebar “1-2-3-Reversal Pattern” for a description of this setup. The monthly chart can be seen in Figure 1.

Step 3: THE DANCE Distinctive movement

Every stock has its own signature moves, and finding that move is critical if you want to trade that stock successfully. I started to analyze the HNSN weekly chart. HNSN has a habit of pausing about six weeks before rising for the next four to five weeks, so I thought of pursuing the stock after its characteristic five-week pause. This is pretty much the high-to-high count Gann technique, which I learnt from Robert C. Miner’s book High Probability Trading Strategies. You can see the HNSN weekly rhythm in Figure 2. With the HNSN rhythm in hand and knowing very well that HNSN likes to rest for six weeks, I put in an alert on my calendar to be notified after four weeks from the first weekly red candle with a lower high.